Educational Articles

Abercrombie & Switch

J. Susan Ferrara
| January 13, 2010

For many teens and young adults, Abercrombie & Fitch (ANF) has been the go-to place to shop for cool, trendy clothing. Originally established as a supplier of outdoor gear and rugged apparel in 1892, the company has transformed itself substantially over the decades, and is now better known for its extensive line of denim, T-shirts, knits, and accessories that capture the youthful, all-American look, with a preppy, yet somewhat sexy, flair. In addition to its namesake stores, which cater to the college-aged demographic, the company also owns the Hollister chain, which offers West-Coast inspired clothing for teens, and abercrombie shops, geared to youngsters.

Over the years, Abercrombie’s styles have resonated well with its target market and shoppers have been willing to pay a premium for the clothing. Indeed, in the name of preserving the brand’s image, the specialty retailer has been careful to minimize or avoid promotional activity by keeping its merchandise mostly at full price. Based on its sizable customer following, the merchant’s pricing strategy has been a successful tactic in differentiating the Abercrombie & Fitch label from other brands. In fact, even during some challenging periods in the past, Abercrombie’s prices haven’t been a deterrent among its most loyal patrons.

But with the latest recession, which appears all but officially over, a growing number of consumers have been balking at high prices. That includes adolescents and young adults—the most fickle segment of buyers—who typically get spending money either from their parents or through part-time work. To say that the current economic situation, underscored by a severe slump in the housing market, a credit crunch, and rising unemployment, has been unkind to the retail sector would be an understatement. Amid tough conditions, a majority of retailers have turned to discounts and promotions to spur customer traffic. Yet, Abercrombie has been an exception. It seems this trendsetter hoped to ride out the recession by maintaining elevated prices and counting on brand loyalty. While Abercrombie’s pricing approach had served it well in past economic downcycles, it has proven to be ineffective this time around. In fact, sales have slipped for several quarters, suggesting that customers have become more reluctant to embrace the Abercrombie brand at high prices and instead are trading down to less-expensive apparel.

Not surprisingly, this has resulted in a loss of market share to those competitors offering cheaper alternatives. Aeropostale (ARO) is one particular specialty retailer that, dare we say, has been thriving these days, benefiting markedly from its rival’s pricing miscues. Although its line of moderately priced casualwear may not be exactly comparable to that of Abercrombie, in terms of brand image, it certainly has been a big hit of late, with value-conscious mall-goers flocking to this chain for good deals. Unlike Abercrombie, Aeropostale’s same-store sales (a key metric that gauges sales performance at stores open at least one year) have been climbing in recent months, reaching a record level in December.

Similarly, some department stores, including Macy’s (M) and Nordstrom (JWN), offering a selection of popular brandname apparel, have also won over frugal shoppers, albeit with aggressive promotions. Discount chain Kohl’s Corp. (KSS) has done well too, with its emphasis on value, while off-price retailers such as TJ Maxx and Marshalls, both operated by The TJX Companies (TJX), have provided bargain-hunters another option to find top labels at substantially lower prices.

In recent months, Abercrombie has made some selective price-point adjustments in an effort to lure reticent customers back to its stores, but to no avail. As other brands gain greater traction in the retail space and shoppers become increasingly loyal to them, it remains to be seen whether or not Abercrombie will be able to eventually recapture lost market share. With consumer spending remaining uneven, and the unemployment rate lingering around a 26-year high of 10%, the economy is likely to recover slowly, which means the retail sector probably won’t see a quick turnaround anytime soon. If this downturn has taught Abercrombie & Fitch any lessons, it’s that brand loyalty can only go so far in helping a retailer prosper. In extraordinary times such as these, shoppers are clearly far less motivated to pay top dollar for clothing, no matter how cool and trendy those fashions might be.